Smith Falconer Financial Group
December 17, 2023
Registered Retirement Income Funds (RRIFs)
As 2023 comes to a close, Smith Falconer Financial Group (SFFG) ensures that all of our valued clients who have Registered Retirement Income Funds (RRIFs), have completed their minimum withdrawal for the year.
In the year that a Canadian turns 71, they must close their Registered Retirement Savings Account (RRSP). In order to keep retirement funds invested and tax-deferred, a RRIF can be opened. Otherwise, two options would be left – cashing in your RRSP and reporting it’s market value as income, or buying a registered annuity from a life-insurance company.
A RRIF can hold the same investments as an RRSP, but starting the year after it is set up, a minimum amount based on a percentage factor known as the “RRIF factor”, must be withdrawn. The RRIF factor increases each year until age 95, and is multiplied by the fair market value of RRIF assets. It starts at 5.28% of assets at age 71, to a maximum of 20% at age 95.
When determining the best strategy for withdrawing from a RRIF, tax must be considered. As there is no maximum amount that can be withdrawn, account holders are able to exercise control over how much is withdrawn from a RRIF in a year, over the minimum amount. For individuals who want to keep their additional income low, they may only take out the minimum amount, or in the case that they have a younger spouse, may base the calculation on their spouse’s age to reduce the amount of the withdrawal.
Canadians who choose to limit their withdrawals to the minimum amount, however, may also consider the tax implications of having a large RRIF remaining at the end of their life. Jamie Golombek, Managing Director of Tax and Estate Planning at CIBC Private Wealth, suggests that a strategy to “minimize income taxes on your RRIF at death is to take annual withdrawals from your plan during your lifetime to maximize the income that will be taxed at low rates by forcing additional withdrawals in years you are in the lowest tax bracket”.
Smith Falconer Financial Group works with our partners to help our valued clients plan for the tax liabilities mentioned above. We are always here to facilitate connections to the right professionals, who can ensure that all decisions are informed, and made strategically.
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